The Need for Greater Value Addition and Competitiveness in Africa

Published on 26th November 2019

It is exactly 30 years-1989-since both the African Union and the United Nations General Assembly declared the observance of Africa Industrialization Day. In those 30 years, many things about Africa’s development have changed. A key change is the commitment of the continent to economic integration and to trade, which is an essential requirement for its competitiveness; which in turn is essential to the quality of its growth. The Africa Continental Free Trade Agreement (AfCFTA) will signal to investors, both local and foreign, that the world’s largest market is an opportunity they should not miss. The evidence from other continents – Europe, Asia, the Americas –is clear: regional integration lowers trade costs and boosts prosperity. So far so good. But what will matter now is the implementation. Behind the proclamations we have to go granular.

At the heart of the matter is creating and adding value in the economy, so that economies grow and prosperity is better shared. This means “moving up the chain”; trading in more processed goods. Right now, the level of processing in Africa’s economy is low: just 35%. This compares to Europe at 74% and Asia at 87%. Manufacturing is a very important part of the value addition story, but its only one part.

The goal must now be to achieve greater value addition and competitiveness across the board –in industry but also in agriculture and in services. A South African company producing lactose-free milk from insects. That is value addition with innovation. A Botswana company is producing specialty preserves that have won international accolades. That is value addition too. It contributes to lowering the food import bill of the continent! I have met with CEOs of 10 innovation hubs across the continent who are pushing to market thousands of young digital start-ups. This is services. That is value addition too. In Ethiopia just in May this year, I had the chance to witness the opening of a textiles factory with investments by an Indian company which has created 1500 jobs in the Mekelle Industrial Park. This is value added too.

This is a small example of the 150 million dollars of investment pipeline that ITC is facilitating between India, China and countries in the region. Is this enough? No. Every year there are 12 million new entrants in the African market - young people. We have to move faster and in a more integrated manner. What do we need for that?

1) We need better data, intelligence, scorecards. Much of what is happening goes unrecorded, unreported and therefore what don’t know, you don’t care.

2) Investment Facilitation measures: simplification of procedures; one stop shop; transparency; anti-corruption measures; all if this is essential to attract investment. This is why it is important for African countries to be part of the on-going WTO discussions on investment facilitation. The goal is not to lower standards to attract low quality investment; the goal is to have clear and transparent principles for sustainable and responsible investment with clear and transparent procedures to invest in the country. This is ultimately what will attract good investment.

3) We need investments in the digital economy. In Africa, 15% of the continent’s 400 million mobile-phone subscribers now own a smartphone. Innovators like SudPay in Senegal help people pay taxes and tickets using electronic means. mScan in Uganda came up with low-cost ultrasound scanning hardware combined with a mobile app for better maternal care.

When we see the astonishing things that can be done with the devices in our pockets, it is easy to forget that internet penetration reaches only around 36% in Africa. But when this improves, we expect a rapid and radical shift in Africa’s business ecosystem. It will open up efficiencies and possibilities in Africa’s agriculture, banking and energy sectors and penetrate even the most remote rural populations and communities. But the most visible manifestation of the digital economy so far is the explosion in e-commerce which has the potential to create as many as three million new jobs in the continent by 2025.

E-commerce start-ups face many obstacles –including low consumer digital trust, fragmented or weak regulatory frameworks, poor infrastructure and low regional integration –but a good sign is that African governments are focusing attention on e-commerce at the continental level as well as at the on-going WTO e-commerce negotiations. Investing in these negotiations will help Africa shape the rules for e-commerce for the future.

4) We need skills. New technology requires new expertise and it is called skills. And especially young people – need to be trained to make the most of the new opportunities offered by more open trade. The African value chains envisioned in the AfCFTA will need millions of new businesses to service them. Contrary to what we may have heard entrepreneurs are made, not born!

Africa certainly has its plate full. This multiplicity of action areas means that policy coherence is the name of the game. All parts of the mechanism must work together. ITC is your partner in building value addition on the continent, in supporting inclusive trade as a means to achieve the UN 2030 Agenda and he Africa Agenda 2063, including at a time of increasing trade tensions, and in championing closer integration at a time where multilateralism is under threat.